1. Field of the Invention
The present invention relates to the field of asset valuation and, in particular, to the field of valuing or rating patents and other intellectual property assets.
2. Description of the Related Art
Patents play an important role in our economy in encouraging private investment in the development of new technologies that improve productivity and quality of life for everyone. Each year more than a quarter-million patent applications are filed in the United States Patent and Trademark Office (xe2x80x9cPTOxe2x80x9d) resulting annually in the issuance of over a hundred fifty-thousand patents. Patent owners and applicants pay combined annual fees and costs of nearly a billion dollars (about $6,700 per issued patent) to the PTO to prosecute and maintain their patents and applications. This does not include the additional fees and costs expended for related professional services, such as attorneys fees and drafting charges.
In addition, each year thousands of patent infringement suits are brought in the federal courts seeking to enforce patent rights. In the 12 months ended Jun. 30, 1992, U.S. federal district courts heard a total of 1407 such patent cases through trial. See V. Savikas, xe2x80x9cSurvey Lets Judges Render Some Opinions About the Patent Bar,xe2x80x9d Nat""l L. J., Jan. 18, 1993, at 57. A recent survey conducted by the American Intellectual Property Law Associations (xe2x80x9cAIPLAxe2x80x9d) reported that the median cost of patent litigation for each side through trial was about $650,000. AIPLA., xe2x80x9cReport of Economic Surveyxe2x80x9d (1991). Other more recent estimates place the cost of patent enforcement litigation somewhere in the range of about $1 million per side through trial. Thus, the aggregate annual cost for obtaining, maintaining and enforcing patents in the United States is easily in the multiple billions of dollars. Similar costs are incurred by patentees in various other foreign countries where patents may be obtained and enforced.
Because of the great importance of patents in the both the U.S. and global economies there has been continued interest in quantifying the intrinsic value of patents and their contribution to economic prosperity of the individuals or companies that hold and/or control them. Such information can be useful for a variety of purposes. For example, patent holders themselves may be interested in using such information to help guide future decision-making or for purposes of tax treatment, transfer pricing or settlement of patent license disputes. Financial advisors and investors may seek to use such information for purposes of comparative value analysis and/or to construct measures of the xe2x80x9cfundamental valuexe2x80x9d of publicly traded companies for purposes of evaluating possible strategic acquisitions or as a guide to investment. Economists may seek to use patent valuations for purposes of economic forecasting and planning. Insurance carriers may use such valuations to set insurance policy premiums and the like for insuring intangible assets. See, e.g., U.S. Pat. No. 6,018,714, incorporated herein by reference.
However, accurate valuing of patents and other intangible intellectual property assets is a highly difficult task and requires an understanding of a broad range of legal, technical and accounting disciplines. Intellectual property assets are rarely traded in open financial markets or sold at auction. They are intangible assets that secure unique benefits to the individuals or companies that hold them and/or exploit the underlying products or technology embodying the intellectual property. In the case of patent assets, for example, this unique value may manifest itself in higher profit margins for patented products, increased market power and/or enhanced image or reputation in the industry and/or among consumers or investors. These and other characteristics of intellectual property assets make such assets extremely difficult to value.
Intellectual property valuation specialists have traditionally employed three main approaches for valuing patents and other intangible intellectual property assets. These are: (1) the cost-basis approach; (2) the market approach; and (3) the income approach. See, generally, Smith and Par, Valuation of Intellectual Property and Intangible Assets, 2nd Ed. 1989. Each of these traditional accounting-based approaches produces a different measure or estimate of the intrinsic value of a particular intellectual property asset in question. The choice of which approach is appropriate to use in a given circumstance for a given asset is typically determined by a professional accountant or valuation specialist, taking into consideration a variety of underlying assumptions, type of intellectual property asset(s) involved, and how such asset(s) are to be employed or exploited. Each of these approaches and the limitations associated therewith are briefly discussed below.
Cost Basis Approach
The first and simplest approach is the so-called cost-basis approach. This approach is often used for tax appraisal purposes or for simple xe2x80x9cbook valuexe2x80x9d calculations of a company""s net assets. Underlying this valuation method is the basic assumption that intellectual property assets, on average, have a value roughly equal to their cost-basis. The supporting rationale is that individuals and companies invest in intellectual property asset(s) only when the anticipated economic benefits of the rights to be secured by the intellectual property asset(s) exceed the anticipated costs required to obtain the asset(s), taking into account appropriate risk factors, anticipated rates of return, etc. In theory, a rational economic decision-maker would not invest in a patent or other intellectual property asset if he or she did not believe that it would produce expected economic benefits (tangible or otherwise) at least equal to its anticipated cost-basis.
There are several drawbacks or limitations associated with the cost-basis valuation approach which limit its general applicability. One significant drawback is that the approach assumes a rational economic decision-maker. While such assumption might be statistically valid on a macro scale where many individual decisions and decision-makers are implicated (e.g., valuing all patents or a large subset of all patents), it is not necessarily a valid assumption when conducting valuation analysis on a micro scale (e.g., valuing a single patent or a portfolio of patents). It is one thing to assume that, on average, individual investment decisions and decision-makers are rational and economically motivated. It is a wholly different thing to assume that xe2x80x9ceachxe2x80x9d investment decision or decision-maker is rational and economically motivated.
For a variety of reasons certain individuals or companies may invest uneconomically in patents or other intellectual property assetsxe2x80x94for example, to achieve personal recognition or to superficially xe2x80x9cdress upxe2x80x9d balance sheets to attract potential investors or buyers. A variety of individual psychological factors may also influence investment decisions producing sometimes irrational or non-economical decisions. For example, the so-called xe2x80x9clottery effectxe2x80x9d may encourage some individuals or companies to over-invest in highly speculative technologies that have the seductive allure of potentially huge economic rewards, but very little if any probability of success. Yet others may invest uneconomically in patents and/or other intellectual property assets because of fundamental misunderstandings or misinformation concerning the role of intellectual property and how it can be realistically and effectively exploited.
But even assuming a well-informed, rational, economically-motivated decision-maker, the cost-basis approach is still susceptible to inherent uncertainties in the decision-maker""s informed and honest projections of the anticipated economic benefits to be gained by a patent or other intellectual property asset. These benefits are often unknown even to the patentee until well after the patent has been applied for and often not until long after the patent has issued. Many new inventions that may look promising on paper or in the laboratory turn out to be economically or commercially infeasible for a variety of reasons and, as a result, patents covering such inventions may have little if any ultimate intrinsic economic value. Other inventions that may seem only marginal at the time the patent is applied for may turn out to be extremely valuable and, if a broad scope of protection is obtained, may return economic benefits far in excess of the cost-basis of the patent. The cost basis approach thus fails to differentiate between these two extremes because (all other things being equal) the cost basis is the same for securing a patent on the worthless invention as it is for securing a patent on the valuable invention.
The cost-basis approach also does not account for the possibility of evolution of products and technology over time and changing business and economic conditions. Rather, the cost-basis approach implicitly assumes a static business and economic environment, providing a fixed value based on actual costs expended at the time of the initial investment without taking into account how the value of that investment might change over time. As a result of these and other short-comings, the cost-basis approach has only limited utility as a method for accurately estimating the intrinsic economic value of patents or other intellectual property assets in real-world business environments.
Market Approach
The second traditional valuation approachxe2x80x94the market approachxe2x80x94seeks to provide real-world indications of value by studying transactions of similar assets occurring in free and open markets. In theory, the market approach can provide veryaccurate measures or estimates of intrinsic value. In practice, however, there are very few open financial markets that support active trading of intellectual property and other similar intangible assets. Most intellectual property assets are bought or sold in private transactions involving sales of entire businesses or portions of businesses. And even if the financial particulars of each such transaction were readily available, it would be difficult, if not impossible, to disaggregate the intellectual property assets involved in the transaction from the other assets and allocate an appropriate value to them.
As a result of these and other practical difficulties, there is presently very little direct real-world data on which to base market comparisons of intellectual property and other similar intangible assets. Nevertheless, several interesting studies have been reported which attempt indirectly to extract market-based valuations of patents and other intellectual property assets by studying the stock prices of various publicly traded companies that hold such assets. See, Hall, xe2x80x9cInnovation and Market Value,xe2x80x9d Working Paper No. 6984 NBER (1999); and Cockburn et al., xe2x80x9cIndustry Effects and Appropriability Measures in the Stock Market""s Valuation of RandD and Patents,xe2x80x9d Working Paper No. 2465 NBER (1987).
While interesting in their approach, the usefulness of the methodologies taught by these studies in terms of valuing individual patent and other intellectual property assets is limited. Such indirect market-based valuation approaches mostly attempt to establish only a generalized correlation between stock prices of publicly traded companies and the aggregate number of intellectual property assets held or controlled by those companies. Because individual stock prices are generally reflective of the overall aggregated assets of a company and its future earnings potential, such indirect market-valuation approaches do not lend themselves readily to valuing individual identified intellectual property assets. Moreover, intellectual property and other intangible assets owned by publicly traded companies comprise only a fraction of the total population of potential intellectual property assets that may be of interest.
A computer-automated variation of the traditional market approach specifically adapted for rating patent portfolios is described in U.S. Pat. No. 5,999,907. In this case, a first database is provided containing information describing selected characteristics of a portfolio of patents to be acquired. A second database is provided containing empirical data describing selected characteristics of representative patent portfolios having known market values. Estimated valuations are obtained by comparing information in the first data base to information in the second database to determine which known patent portfolio the portfolio to be acquired matches the closest. The value of the closest matching known portfolio is then used as a rough approximation of the value of the portfolio to be acquired.
While such approach provides an innovative variation of the market-based valuation technique described above, it is again ultimately limited by the need to acquire relevant market data of known patent portfolios. As noted above, such information is very difficult to obtain. Unless a large amount of such data could be collected and analyzed, the effectiveness and accuracy of such an approach would be very limited. Even if a large amount of such data could be collected and stored in a suitable computer-accessible database, the process of individually retrieving and comparing relevant characteristics of each representative portfolio in the database would be undesirably time consuming, even using a high-speed computer. Moreover, the statistical accuracy of the resulting approximated valuations would be undetermined.
Income Approach
The third and perhaps most commonly used accounting-based approach for valuing intellectual property and other intangible assets is the so-called income approach. This approach can provide accurate and credible valuations of intellectual property assets in certain situations where an isolated stream (or streams) of economic benefit can be identified and attributed to an intellectual property asset in question. The income approach values an intellectual property asset by capitalizing or discounting to present value all future projected revenue streams likely to be derived from its continued exploitation. For example, if a patent asset is licensed under an agreement that provides for a predictable income stream over a certain period of time into the future, then the intrinsic value of the patent may be accurately calculated by taking the net discounted present value of the residual income stream (less any scheduled maintenance costs). Similarly, if the patentee is directly exploiting the patent itself, the intrinsic value of the patent may be calculated by taking the net discounted value of the incremental profit stream (assuming it can be identified) attributable to the patent over the remaining life of the patent or the economic life of the patented technology.
In theory, the income valuation approach can produce very accurate estimates of intrinsic value for certain intellectual property and other intangible assets. In practice, however, it is often difficult to identify with certainty and precision an isolated income stream attributable to a particular intellectual property asset in question, let alone an income stream that is predictable over time. In addition, many intellectual property assets, particularly newly issued patents, are not licensed or exploited at all and, therefore, there are no identifiable income streams upon which to base a valuation.
In such circumstances many asset valuation specialists attempt to project possible or hypothetical future revenue streams or economic benefits based on available data of other similar companies in the industry and/or other license agreements for similar intellectual property assets in the same general technical field. Some patent valuation experts have even established extensive data-bases of patent licenses and have attempted to establish a schedule of xe2x80x9cstandardxe2x80x9d or baseline royalty rates or royalty ranges for patent licenses in various industries for purposes of forecasting possible future revenue streams. While such information can be very helpful, without an actual demonstrated income stream or other proven economic benefit, the income-based valuation approach loses credibility and can become more speculation than valuation.
Each of the above valuation approaches has its characteristic strengths and weaknesses. Of course, no single valuation method can provide absolute certainty of the true intrinsic value of an asset. This is especially true when valuing patents and other intangible intellectual property assets. Nevertheless, a need exists for a comparative valuation technique that overcomes the aforementioned problems and limitations and which does not require collecting comparative market data of existing patent portfolios or calculating future hypothetical income streams or royalty rates. There is a further need for an intellectual property valuation method that produces statistically accurate valuations, ratings or rankings according to a determined statistical accuracy.
The present invention compliments and improves upon traditional valuation approaches by providing an objective, statistical-based rating method and system for independently assessing the relative breadth (xe2x80x9cBxe2x80x9d), defensibility (xe2x80x9cDxe2x80x9d) and commercial relevance (xe2x80x9cRxe2x80x9d) of individual patent assets and other intangible intellectual property assets according to a determined statistical accuracy. Thus, the invention can be used to provide new and valuable information that can be used by patent valuation experts, investment advisors, economists and others to help guide future patent investment decisions, licensing programs, patent appraisals, tax valuations, transfer pricing, economic forecasting and planning, and even mediation and/or settlement of patent litigation lawsuits.
In one embodiment the invention provides a statistically-based patent rating method and system whereby relative ratings or rankings are generated using a database of patent information by identifying and comparing various characteristics of each individual patent to a statistically determined distribution of the same characteristics within a given patent population. For example, a first population of patents having a known relatively high intrinsic value or quality (e.g. successfully litigated patents) is compared to a second population of patents having a known relatively low intrinsic value or quality (e.g. unsuccessfully litigated patents). Based on a statistical comparison of the two populations, certain characteristics are identified as being more prevalent or more pronounced in one population group or the other to a statistically significant degree. Multiple such statistical comparisons are used to construct and optimize a computer model or computer algorithm that can then be used to accurately predict and/or provide statistically-accurate probabilities of a desired value or quality being present or a future event occurring, given the identified characteristics of an individual patent or group of patents.
The algorithm may comprise a simple scoring and weighting system which assigns scores and relative weightings to individual identified characteristics of a patent or group of patents determined to have statistical significance. For example, positive scores would generally be applied to those patent characteristics having desirable influence and negative scores would apply to those patent characteristics having undesirable influence on the particular quality or event of interest. A high-speed computer is then used to repeatedly test the algorithm against one or more known patent populations (e.g., patents declared to be valid/invalid or infringed/non-infringed). During and/or following each such test the algorithm is refined by adjusting the scorings and/or weightings until the predictive accuracy of the algorithm is optimized. Once the algorithm is suitably optimized, selected metrics for an individual indentified patent or group of patents to be rated are input into the algorithm and the algorithm is operated to calculate an estimated rating or mathematical score for that patent or group of patents. Individual results could be reported as statistical probabilities of a desired quality being present, or a future event occurring (patent being litigated, abandoned, reissued, etc.) over a specified period in the future. Results could also be provided as arbitrary raw scores representing the sum of an individual patent""s weighted scores, which raw scores can be further ranked and reported on a percentile basis within a given patent population and/or upon any other comparative or non-comparative basis as desired.
The first and second patent populations selected for analysis are preferably roughly the same size and may comprise essentially any two groups of patents (or identifiable subsets of a single group of patents) having different actual or assumed intrinsic values or other qualities of interest. For example, the first population may consist of a random sample of 500-1000 patents that have been successfully litigated (found valid and infringed) and the second population may consist of a random sample of 500-1000 patents that have been unsuccessfully litigated (found either invalid or not infringed). Alternatively, the first population may consist of a random sample of patents that have been litigated and found valid regardless of whether infringement is also found, and the second population may consist of a random sample of patents that have been found invalid. Likewise, the first population may consist of a random sample of patents that have been litigated and found infringed regardless of the validity finding and the second population may consist of a random sample of patents that have been found not infringed.
The selection of which study population(s) to use depends upon the focus of the statistical inquiry and the desired quality (e.g., claim scope, validity, enforceability, etc.) of the patent asset desired to be elicited. For example, if validity is the quality of interest, then the first and second patent populations may preferably be selected such that one population is known or predicted to have a higher incidence of invalid patents than the other population. This information may be readily gathered from published patent decisions of the Federal Circuit and/or the various federal district courts. Thus, the first population may consist of a random sample of patents declared invalid by a federal court and the second population may consist of a random sample of patents from the general patent population, which are presumed to be valid. Alternatively, the second population may consist of a random sample of patents declared xe2x80x9cnot invalidxe2x80x9d by a federal court following a validity challenge.
The approach is not limited, however, to analyzing litigated patents. For example, fruitful comparisons may also be made between litigated patents (presumably the most valuable patents) and non-litigated patents; or between high-royalty-bearing patents and low-royalty-bearing patents; or between high-cost-basis patents and low-cost-basis patents; or between published patent applications and issued patents. The number and variety of definable patent populations having different desired qualities or characteristics capable of fruitful comparison in accordance with the invention herein is virtually unlimited. While not specifically discussed herein, those skilled in the art will also recognize that a similar approach may also be used for valuing and/or rating other intellectual property or intangible assets such as trademarks, copyrights, domain names, web sites, and the like.
In accordance with another embodiment the invention provides a method for rating or ranking patents. In accordance with the method, a first population of patents is selected having a first quality or characteristic and a second population of patents is selected having a second quality or characteristic that is different from the first quality or characteristic. Statistical analysis is performed to determine or identify one or more patent metrics having either a positive or negative correlation with either said first or second quality to a statistically significant degree. A regression model is constructed using the identified patent metric(s). The regression model is iteratively adjusted to be generally predictive of either the first or second quality being present in a given patent. The regression model is used to automatically rate or rank patents by positively weighting or scoring patents having the positively correlated patent metrics and negatively weighting or scoring patents having the negatively correlated patent metrics (xe2x80x9cpositivexe2x80x9d and xe2x80x9cnegativexe2x80x9d being used here in the relative sense only). If desired, the method may be used to generate a patent rating report including basic information identifying a particular reported patent or patents of interest and one or more ratings or rankings determined in accordance with the method described above.
In accordance with another embodiment the invention provides a statistical method for scoring or rating selected qualities of individual patents and for generating a rating report specific to each individual patent rated. The method begins by providing a first database of selected patent information identifying and/or quantifying certain selected characteristics of individual patents from a first population of patents having a selected patent quality of interest. A second database (or identified subset of the first database) of selected patent information is also provided identifying and/or quantifying certain selected characteristics of individual patents from a second population of patents generally lacking or having reduced incidence of the selected patent quality of interest. Statistical analysis is performed to identify one or more characteristics that are statistically more prevalent or more pronounced in either the first or second patent population to a statistically significant degree. Based on this information and the identified characteristics, individual patents may be scored or rated by positively weighting those having the same or similar characteristics and negatively weighting those lacking the same or similar characteristics. If desired, the method may be used to generate a patent rating report including basic information identifying a particular reported patent or patents of interest and one or more ratings or rankings determined in accordance with the method described above.
In accordance with another embodiment the invention provides a method and automated system for rating or ranking patents or other intangible assets. In accordance with the method a first population of patents is selected having a first quality or characteristic and a second population of patents is selected having a second quality or characteristic that is different from or believed to be different from the first quality or characteristic. A computer accessible database is provided and is programmed to contain selected patent metrics representative of or describing particular corresponding characteristics observed for each patent in the first and second patent populations. A computer regression model is constructed and adjusted based on the selected patent metrics. The regression model is operable to input the selected patent metrics for each patent in the first and second patent populations and to output a corresponding rating or ranking that is generally predictive of the first and/or second quality being present in each patent in the first and second patent populations. The regression model may then be used to rate or rank one or more patents in a third patent population by inputting into the regression model selected patent metrics representative of or describing corresponding characteristics of one or more patents in the third population.
In accordance with another embodiment the invention provides a high-speed method for automatically scoring or rating a sequential series of newly issued patents as periodically published by the PTO and for determining and storing certain rating or scoring information specific to each patent. According to the method, a substantial full-text copy of each patent in the sequential series is obtained in a computer text file format or similar computer-accessible format. A computer program is caused to automatically access and read each computer text file and to extract therefrom certain selected patent metrics representative of or describing particular observed characteristics or metrics of each patent in the sequential series. The extracted patent metrics are input into a computer algorithm. The algorithm is selected and adjusted to produce a corresponding rating output or mathematical score that is generally predictive of a particular patent quality of interest and/or the probability of a particular future event occurring. Preferably, for each patent in the sequential series the rating output or mathematical score is stored in a computer accessible storage device in association with other selected information identifying each rated patent such that the corresponding rating or score may be readily retrieved for each patent in the sequential series.
In accordance with another embodiment the invention provides a method for valuing individual selected patents. A patent value distribution curve and/or data representative thereof is provided. The shape of the curve generally represents an estimated distribution of patent value according to percentile rankings within a predetermined patent population. The area under the curve is generally proportional to the total approximated value of all patents in the predetermined patent population. Individual selected patents from the population are ranked in accordance with selected patent metrics to determine an overall patent quality rating and ranking for each individual selected patent. The patent value distribution curve is then used to determine a corresponding estimated value for an individual selected patent in accordance with its overall patent quality ranking. If desired, the method may be used to generate a patent valuation report including basic information identifying a particular reported patent or patents of interest and one or more valuations determined in accordance with the method described above.
In accordance with another embodiment, the invention provides an automated method for scoring or rating patents in accordance with user-defined patent metrics and/or patent populations. The automated method is initiated by a user selecting a patent, or group of patents, to be rated. A full-text computer accessible file of the patent to be rated is retrieved from a central database, such as that currently maintained by the U.S. Patent and Trademark Office at www.uspto.gov. A computer algorithm evaluates the full-text file of the patent to be rated and extracts certain selected patent metric(s), which may be predefined, user-defined, or both. Based on the selected patent metric(s), the algorithm computes a rating number or probability (e.g., between 0 and 1) corresponding to the likely presence or absence of one or more user-defined qualities of interest in the patent to be rated and/or the probability of one or more possible future events occurring relative to the patent. If desired, the rating number or probability can be further ranked against other similar ratings for patents within a selected patent population, which may be predetermined, user-defined, or both. Thus, the method in accordance with the preferred embodiment of the invention is capable of producing multiple independent ratings and/or rankings for a desired patent to be rated, each tailored to a different user-defined inquiry, such as likelihood of the patent being litigated in the future, being held invalid, likelihood of successful infringement litigation, predicted life span of the patent, relative value of the patent, etc.
For purposes of summarizing the invention and the advantages achieved over the prior art, certain objects and advantages of the invention have been described herein above. Of course, it is to be understood that not necessarily all such objects or advantages may be achieved in accordance with any particular embodiment of the invention. Thus, for example, those skilled in the art will recognize that the invention may be embodied or carried out in a manner that achieves or optimizes one advantage or group of advantages as taught herein without necessarily achieving other objects or advantages as may be taught or suggested herein.
All of these embodiments and obvious variations thereof are intended to be within the scope of the invention herein disclosed. These and other embodiments of the present invention will become readily apparent to those skilled in the art from the following detailed description of the preferred embodiments having reference to the attached figures, the invention not being limited to any particular preferred embodiment(s) disclosed.